Thursday, June 9, 2011

CART, Democracy and Roger Penske

(by Obi-Wan crapwagon.com 6-7-11)

CART was structured very much like a professional sports league with individual team owners looking out for their own best interests (i.e. team) and trying to gain an advantage (unfair or otherwise) over the other owners. However, with its democratic governing structure it was rightly (IMO) assumed that the more extreme individual interests would be largely canceled out by collective group interest when it came to voting.

We all know that there is usually a difference, sometimes great, between the way a democracy is supposed to operate and the way it actually does in the real world. However, the important thing is that the ideal be kept ever in mind and that there is a constant striving on the part of a majority of the citizens to bring the ideal into being. When that situation is operative, abuses of the system are hopefully short-term as its members correct them in pursuit of the perfect model.



Yes, like a lot of rich men Penske used his wealth to finagle (some might say abuse) CART’s democratic governing structure. However, I believe that a correction for his more flagrant practices was well under way within CART by a majority of the team owners and it was this “revolt” which Tony George seized upon in his early efforts (and justifications) for taking over the sanctioning body. When the reformers within CART got a good look at what George was trying to sell them – basically a “benevolent” dictatorship – they wisely chose to reject Tony’s offer and decided to handle Penske on their own.

It is my suspicion that Penske set up the Idiot Grandson to fail (in his takeover bid) with the predictable result that George vowed to do everything in his power to ruin them and the sport, and then RP used Tony’s very real threats to convince the other team owners to abandon CART’s democratic governing structure and adopt a mutated form of George’s autocratic commission (only with Penske in charge instead of Tony). In his July 8, 1994 press release announcing the formation of the Indy Racing League, George refers to this as “the recent trial period (July 1992 - Jan. 1994) with George as a non-voting CART board member [that] failed to move IMS and CART closer together.”

What Tony doesn’t mention is that the CART board of which he was a non-voting member was a special seven-person board that he and Penske (IMO) forced upon the organization to replace its previous 17-member democratic board. When George quit the new CART board in a fury because it selected Andrew Craig to replace Bill Stokkan as CEO instead of Tony’s hand-picked choice, Cary Agajanian, the team owners quickly reverted to the original democratic structure (but with a maximum of 24 members).



Between July 1992 and January 1994 I would contend that Penske was more in charge of CART than at any other period except during the organization’s formative period. Once the other team owners took back CART governance in July 1994, immediately after George formally announced formation of the IRL, I think Penske’s days as ruler of the sanctioning body were over. As the other owners looked to correct The Captain’s perceived abuses of power, he seemed to begin to distance himself from the organization he co-founded. In 1996, he sold 12% of his motorsports holding company to NASCAR’s France family and in 1997 he helped engineer the taking of CART public; which allowed him to cash out his CART interests at the expense of unsuspecting new shareholders. In 1999, he sold out all his CART stock (as soon as he was legally able) and completed the sale of PMI to the Frances. From that moment on, Penske had no more ownership or designs on the governance of AOWR.

My sense is that Penske prolonged his rule over CART as long as he was able but that an impatient George forced his hand. Stokkan’s decision not to seek renewal of his contract as CART president (in part because of harassment from George), created a situation from which there was no escape: the choice of his successor as nominal head of the sanctioning body caused George to make his move to take over the company and when that failed and he left, the spotlight turned on Penske.

I believe Penske may have dodged a bullet earlier, at the time that Tony made his bid to buy the sanctioning body. For unknown reasons George had decided on Goodyear’s director of racing, Leo Mehl, to be his nomination for the position of commissioner over the sport; whose sanctioning body was to be renamed “Indy Car, Inc.” When the team owners firmly rejected Mehl, George was incensed and called their refusal a “deal breaker” with respect to his entire proposal. Why Tony chose to make Mehl his line in the sand is a mystery, because he (Mehl) was reportedly turned away because the owners thought he was “Penske’s man.” At the time Roger owned the Goodyear racing tire distributorships for the Midwest, East and Eastern Canada, so it was not an unlikely assumption. I think it illustrates, however, how much resistance there was to Penske’s influence over the sport; to the point of paranoia. It is perhaps too facile to suspect that since Penske helped prep George for his presentation to the CART BoD, he may have been the one to suggest Mehl to George. On the other hand, it has been written that A.J. Foyt played a pivotal role in the advancement of Mehl’s career, so possibly George’s godfather was the purveyor of the idea of the Goodyear man for the position of commissioner. If there was indeed a connection between Penske and Mehl, it makes for interesting speculation about Roger’s influence over the IRL after George chose him to head his new motor sport from 1996-2000; an influence of which Tony may possibly have been unaware.



Be that as it may, I think that it is likely that the surprising amount of support that George found among the small-team owners in CART alerted Penske to his vulnerability. As you noted, CART’s governing structure theoretically gave each franchise holder equal power within the series; however, a prominent team owner like Penske had much more invested in the series and, hence, much more to lose. If George had succeeded in getting enough of the disgruntled team owners on the CART board to agree to sell him the company (i.e. sport) in November 1991, then Roger would have been out millions of dollars. At the time CART was financed by a $7 million personal loan (according to Bob Jennings) from Penske, which would have been repaid, but Roger was undoubtedly using his influence over CART to capitalize his other motorsports properties; which would have been put in jeopardy.

For example, Penske was just about the only team owner with enough foresight and financial wherewithal to see that the only way the sport could secure the speedway racing component of the sport was to own speedways and act on it. By doing so, Penske not only guaranteed access to speedways for CART but contained George and his family in Indianapolis. This was especially effective as Tony had made it clear that he was only interested in creating an oval-centric motor sport. Of course, these were not Penske’s only reasons for owning speedways. For instance, speedway ownership combined with leadership of CART gave Roger a seat at NASCAR’s table roughly equivalent to that of the Frances and arguably more influential than that of other speedway owners like O. Bruton Smith. That’s because Smith could only turn to the Frances for access to the profitable races he needed to make his speedways prosperous but Penske had access to his own motor sport for that purpose; access which he could use to barter with the Frances for Cup races. So, coming relatively late to the NASCAR table, Penske still commanded a choice seat.

Another use for his control of CART was to be found (IMO) in Penske’s pioneering use (in motor sport) of the sort of public-private financing for the construction of multimillion dollar speedways that other professional sports leagues used to build their stadiums and enrich the franchise holders. Here, I think Penske forged a path that was later used to great success by the titans of NASCAR.

Thus, it is probable that while the democratic board structure of CART was intended to treat all team owners as equals, the reality of the situation was that (to paraphrase Orwell’s Animal Farm): “all team owners are equal; only some are more equal than others.”

The fact that Tony George got relatively close to buying CART out from under Penske – a fact of which George seems unaware – must have come as a shock to Roger; as well as being a wake-up call. I think it could be argued that Penske needed to assume direct control over CART during George’s “trial period” in order to prepare to divest himself of his suddenly vulnerable properties at better than fire-sale prices.

This speculation gets an added measure of intrigue if one factors in the contention that Bill France Jr. manipulated the Idiot Grandson into acting to destabilize CART and essentially attack Penske’s corporate holdings and drive him into France’s arms. If that seems like a far-fetched conspiracy theory, it is lent some credibility by Tony George’s report during a radio interview last week (in company with Robin Miller) that he was heavily influenced by France and urged by key USAC leaders to act as he did in his challenge to CART and formation of the IRL.



If there is truth to the assertion, then it certainly worked. When France reportedly influenced George to move against the team owners of CART – and Tony started reporting this to the press not long after he assumed the presidency of IMS in January 1990 – Penske had a prominent place in NASCAR politics and deal-making. Six years later, Roger was more or less forced by a dysfunctional George to hedge his bets and ally himself with the Frances. By 1999, Bill France Jr. owned almost all of Penske’s motorsports holdings, thanks to the loose cannon that is Tony George. In return for his endangered properties, Penske received ISC stock which made him the second largest shareholder in the company outside the France family group. However, ISC and NASCAR are structured such that the Frances retain control of the companies almost no matter how much their share holdings are diluted; so while on paper Penske was the second most influential person in NASCAR, the reality is that he would always be subservient to the Daytona Beach family. Thus, France’s manipulation of Tony George, if real, won him control over Penske and undisputed hegemony over NASCAR. Bruton Smith evidently only woke up to that reality when he heard rumors that a merger between ISC and PMI was in the offing (circa 1998/1999). Way too late, he tried to reach Penske in order to negotiate a deal but Roger reportedly wouldn’t take his call; by then, the merger was a fait accompli.

Back on topic, in the 1994 press release announcing formation of the IRL, Tony George commented (in the third person tense of which he is fond): ” "The Indy Racing League offers a new series management structure and philosophy which we at the Indianapolis Motor Speedway believe in very strongly," George said. "We are pleased to include the 1996 Indianapolis 500 exclusively in this new series."



The rhetoric masked what was an ultimately successful hostile takeover of the sport. The “new philosophy” of which Tony spoke was the divine right of kings, coming from a Terre Haute family that considers itself to be AOWR royalty. For all of George’s talk about answering the pleas of the sport's other stakeholders, there has only ever been one stakeholder in his view: the Hulman family. Tony is fond of masking his autocratic ways with hosts of advisory committees, commissioners, political appointees, investigative bodies, etc. and the original title of his sport, league, is a farce meaning: ”an association or union of persons, nations, etc, formed to promote the interests of its members” or in the sports context, ”an association of sporting clubs that organizes matches between member teams of a similar standard.”

Yet, inclusive as it was meant to sound, the Indy Racing League only ever had one controlling member: the Hulman-George family. Everyone else is either an employee and/or a vassal of the royal family. Tony only discovered the harsh reality behind the fa├žade -- which other supposed members of the league had known for quite some time – when his mother, sisters, and the family attorney deposed him and sent him into brief exile in June 2009.

In any event, the sport is now in the hands of a family of former wholesale grocers. That may sound like a knock, but it is a necessary descriptor. That’s because the Hulman-George family approaches the sport as if it were one of the commodities that once graced their long-gone warehouse shelves. From the beginning their aim has been complete ownership of the sport, after which their strategy is to make their proprietary product cheaper than competing products. Their grocery sense tells them that this is the way to dominant the market place; the difference between baking powder and auto racing being negligible in their view.

This is the primary reason that INDYCAR fans have had to endure the same boring motorsport product (i.e. the “spec” series) for the past eight seasons. The key to the H-G strategy for motor sport domination is to make participation in their motor sport as inexpensive as possible – so that any dissenting team owner can be summarily banned and easily replaced, thus making the family business immune to outside influence – and to make its equipment proprietary. This latter feature proved to be vitally important to their takeover of the sport.



Early in 2002, when CART was reeling from a year of sabotage, unprecedented attacks in the NASCAR press and, most importantly, the defection of Team Penske and the majority of its auto manufacturers/sponsors to the IRL, its new president (Chris Pook) tried to save the series by recommending to its franchise board that it adopt the IRL’s chassis and engine specifications virtually verbatim so that the team owners could operate in both series at will. Tony George responded to the CART board’s adoption of the IRL’s technical outline as a threat and, belatedly, as an opportunity. He already had in place regulations that permitted manufacturer participation in the IRL only on an approved basis; mostly as a means of taxing the sport’s suppliers. To ensure the proprietary nature of his equipment, George took a further step and demanded that those suppliers who were dependent on him – for instance, his chassis makers – sign letters of exclusivity. After being wooed by the league and spending more than a million dollars on a prototype Indycar chassis for the new “common” formula, Lola for one refused to sign the exclusivity agreement and was disapproved as a league supplier in favor of the vaporware MK Racing company (which never produced an operable racecar). As a consequence, Lola Cars nearly went bankrupt and had to reorganize.

In case his exclusivity agreements proved inadequate (or unenforceable), George had a back-up plan: he had exclusive rights to certain pieces of equipment, like the Xtrac transmission, whose use he mandated on all IRL chassis. Thus, an outside chassis maker like Lola might be able to build a “common” chassis but it could never be used in the IRL without the family’s blessing. The same was true of any potential engine manufacturer, who was required to have their product badged by an official IRL automaker. Again, this policy was put in place so that the H-G family could siphon off most of the auto manufacturer sponsorship that was going to the team owners (in CART for instance), a sum in the hundreds of millions of dollars (in the popular rival series). When Chris Pook announced CART’s common-equipment initiative early in 2002, CART had five committed engine manufacturers signed on but only one was an approved IRL supplier (Toyota). One by one, the potential “badges” were dissuaded by the IMS owners from allying with the CART engine makers. For instance, a disgruntled Honda formed an alliance with Penske’s Ilmor Engineering (one of the committed engine makers) and made it a condition of their partnership that the engines not be made available to the rival Champ car series. Another interested “badge,” Nissan (Renault), withdrew from competition when faced with the daunting prospect of an all-out engine “war” in the IRL between Honda and Toyota. Finally, Toyota reneged on its agreement to sponsor CART teams and looked to balance its IRL budget on the backs of the CART team owners and Ford, disgusted, headed for the door. Only an 11th-hour appeal by Pook to Ford kept the Detroit automaker as a CART engine supplier; albeit on an exclusive basis as a requirement. Hence, George and the IRL were the actual architects of the latter-day CART “spec” series (as a last-ditch effort by it to survive).

The only reason that INDYCAR fans are getting the “exciting” new 2012 Indy cars, assuming they do, is because the Hulman-Georges were guaranteed that the new cars would be half the cost of the old cars; which fits perfectly with their strategy to control the marketplace for their motor sport. However, the initiative is doomed to failure (IMO) because the family could not care less about the desires of the fans but rather see the new formula as expanded opportunities to suck more money out of their sport’s suppliers. For example, the family recently concluded a sponsorship deal with Borg-Warner to become the exclusive turbocharger supplier for the new 2012-2016 Indycar formula. A quick check of the suppliers the last time that the sport featured turbocharged cars (i.e. CART/CCWS), didn’t turn up Borg-Warner as one of its turbo suppliers; Honda used IHI turbos and Ilmor-Mercedes and Cosworth used ones from Garrett. Now, if the H-G’s new formula actually sees the light of day, its engine manufacturer clients will have to try to differentiate the performance of their engines using the same brand of turbocharger (because the family gets a fee for its use). The same is true, as recently disclosed by project leader Tony Cotman, for the trusty (if not tried and true) Xtrac transmission and, of course, Dallara chassis. It is rumored that it was the H-G’s greed and attempt to soak Firestone that caused the tire maker to announce its withdrawal from the ICS in 2013 (and refuse to “co-promote” the series).

In his recent radio interview, Tony George lamented that major ICS sponsors like PVH/IZOD were wasting their resources by sponsoring individual teams (e.g. Penske) and drivers (e.g. Ryan Hunter-Reay) when they should be using the money (in his view) to promote the INDYCAR brand. That, of course, is a euphemistic reference to the option of paying the money instead directly to the Hulman-George family; a practice Tony more than endorses. Yet, in the same interview George also lamented his inability to fund his Vision Racing team because he was unable to secure sponsorship for it! Amazing as it seems, his team’s sponsorship went away with his control over the IRL and its rulebook and officials. Tony doesn’t seem to understand why sponsors would want to back winning teams and drivers (instead of his own losing ones) or use their money to market as they see fit rather than just hand the money to his family as a form of Hoosier baksheesh.

Anyway, it is debatable how “different” the new Indycars are going to be when the H-G family controls its specification and development and are shopping every identical nut and bolt of it to the highest bidders in order to line their pockets.

Back on topic, it is a commonly held belief in our sport (and especially among the Gomers) that governance of the sport by team owners was an unmitigated disaster. That tired notion couldn’t be further from the truth, IMO. It is often overlooked that CART was modeled after Formula One’s F1CA/FOCA (Formula One Constructors Association) and that both premier open-wheel series arguably reached the heights of their popularity and prosperity worldwide when they were governed by their team owners. Here it should be remembered that Bernie Ecclestone was merely the spokesman/agent for his fellow team owners until he managed to get his lawyer, Max Mosley, to persuade the FIA to sell the commercial rights to the sport to him in 2000 without competitive bid and on scandalously easy terms. This had been made necessary by Bernie’s attempt to take his FOM companies public, which required him to make financial disclosure about the inner workings of his F1 empire. When his fellow team owners found out how much he had been skimming from the sport, supposedly at their behest, they made plans to buy the sport themselves and dump the rapacious Ecclestone and Mosley. The Gruesome Twosome barely beat them to the feeding trough. The point being that however much Eccelstone or Penske actually pulled the strings in their respective motor sports, the sports were actually operated by associations of team owners when they achieved their greatness. The proof of the collective team owners’ not-inconsiderable influence is the extraordinary escape plans that both el supremo and The Captain had to avail themselves of when their fellows discovered that they had been skunked.

Further, I don’t think we should forget that any human enterprise, no matter the purity of its intentions, is subject to corruption; especially one organized for the financial benefit of its members (as was CART and FOCA). When Penske opened the series floodgates to auto maker sponsorship of the teams with first, Chevrolet, and then Mercedes-Benz, he made the team owners self-aggrandizing representatives of the car manufacturers. Honda had done wonders in CART with a relatively modest budget and large doses of innovation. An internal study by rival Japanese manufacturer Toyota in the 1990’s highlighted Honda’s success in CART as one of the keys to its sales success in North America; where Honda’s share of the market was roughly equivalent to that of Toyota (at around 10%). This was remarkable because at home in Japan, Honda was usually considered an “also ran” in comparison to giants like ToMoCo (the Nippon GM) and Nissan. On the basis of the study, Toyota’s leadership decided to declare “war” on Honda and make the focus of their attack Honda’s participation in the CART series.

On entering North America’s premier open-wheel motor sport, Toyota’s greatest asset was its massive capitalization. Toyota initially tried to take Honda’s approach to the sport with its alliance with Dan Gurney’s All-American Racers; but without much success. Gurney attributes Toyota’s lack of results to its meddling with his efforts. Honda’s CART campaign was being run for the most part domestically by the motorsport arm of American Honda; whereas Toyota insisted that TRD in Japan oversee Gurney’s efforts (especially with respect to their engines, which were an embarrassment). Finally, Toyota decided to take the gloves off and BUY victory over their rivals in CART. The opening salvo was their purchase of Target Chip Ganassi Racing’s four-time championship team (with Honda powerplants) for a rumored $40 million and then their representation of TCGR’s championships as their own. This so incensed American Honda executives that one had to be restrained at the Detroit Auto Show – where the TCGR cars with Toyota livery were on display – from physically attacking the visiting president of Toyota!

In any event, it is debatable if ANY democratic institution could have withstood corruption when a special interest group with such vast resources targeted it with literally hundreds of millions of dollars in “sponsorship.” I’m going from memory but if it serves, in the last years of CART participation by the major engine manufacturers, Toyota’s budget was said to be around $110 million annually (and an unknown sum under the table); with Honda at around $80 million and Cosworth at about $60 million. Ganassi became the de facto Toyota bagman in CART and used its wealth to buy votes on the CART franchise board (which had conveniently been made separate from CART’s corporate Delaware Board and oversaw all technical developments in the sport). I think it was relatively easy for certain team owners – now divorced from series governance by the IPO – to convince themselves that taking money to vote Toyota’s agenda would have little effect on the sport. In point of fact, it ended up destroying it; as the Ganassi-delivered Toyota ultimatums destabilized the series and enraged Honda (who was unable to match Toyota spending on corruption) to the point where it left the sport for the IRL but, more importantly, decided to destroy CART as an act of revenge for its betrayal of the carmaker.

If the Champ car sanctioning body had not been embroiled in a deadly “war” between itself and the IRL (going on seven years), it might have been able to curb the manufacturers’ abuses of the system with measures akin to the government’s campaign spending reforms but it had the IMS owners actively aiding and abetting the turmoil in CART (“I bring a hammer to work every day”); and it ran out of time and sponsorship. Much is made of the fact that CART had $100 million in the bank (from the IPO) when Pook began to fight back in 2002. Overlooked is the fact that the Hulman-George family spent at least six times that much to win its war. Moreover, the H-G’s started and ended the conflict with two renewable sources of income – the Brickyard 400 and Indy 500 – whereas CART lost much of its income-generating assets with Penske’s defection.

So, say what you will about CART under the leadership of its democratic team owners; the proof was in the pudding (and CART’s once-soaring popularity). As Winston Churchill remarked: ” It has been said that democracy is the worst form of government except all the others that have been tried.”

In any event, one fact of which I am positive is that our sport will never prosper and/or regain its popularity as long as it is a captive of the would-be royal family from Terre Haute.

JMO

No comments: